Market Overview, March 2010

Consider this question: would you rather have $10,000 a day for 30 days or a cent that doubled in value every day for 30 days?
Most know you should choose the doubling cent because at the end of 30 days – thanks to compound interest – you would have over $5 million instead of $300,000.
Whilst you’re working out that little equation, let’s take a brief look at what’s been going on as the market ended last week just a shade under the old S&P 500 high of 1150.20 set on January 19th.

US – Equities experience sharp gains and falls in a turbulent month of trading.
After a positive start, stocks retreated after US jobless claims unexpectedly rose and anxiety mounted that ballooning government debt would derail the recovery. Later, generally positive data helped investors snap out of the pessimistic mood and the market logged strong gains over much of the month. US unemployment unexpectedly fell to 9.7%, the lowest level since August 2009.

UK – The London market proves more resilient than most in an eventful month for equities.
Good news on company earnings, notably Barclays (which reported the largest profit among European banks). Merger and acquisitions activity also returned to the headlines in February with Kraft Foods of America agreeing a takeover of Cadbury.

Europe ex UK – European markets dominated by default concerns over southern members.
Shares suffered sharp corrections early on due to growing concerns of a default in Greece and the possibility of this spreading to other Mediterranean members Spain and Portugal. Economic data also proved a drag on the market. Mid-month, a show of solidarity from other EU states, particularly Germany, calmed market fears over Greece and led to a recovery in equities.

Asia – Stock markets make little headway in a turbulent month of trading.
Falling retail sales in Australia and rising jobless rate in New Zealand sparked worries over recovery. However, markets picked up after better than expected news on Chinese inflation and a rise in jobs growth in Australia. Even a move by China’s central bank to raise its reserve requirement for the second time in 2 months failed to halt the market advance. Volatility returned towards the end of the month on concerns that the US and UK governments were preparing to abandon their stimulus programmes. Growing optimism about the Asia Pacific region’s own recovery helped markets to end February on a high note.

The components of compound interest
A dollar invested at a 10% return will be worth $1.10 in a year. Invest that $1.10 and get 10% again, and you’ll receive $1.21 two years after you originally invested. The first year earned you only $0.10 but the second generated $0.11.
This is compounding at its most basic level. Increase the amounts and the time involved and the benefits of compounding become even more pronounced.
Compound interest is often called the 8th wonder of the world because it seems to possess magical powers. And because it applies to money, it helps achieve financial goals from retiring comfortably to being financially independent or becoming a millionaire.

Your choices: To use it most effectively, you should start investing early. Invest as much as possible and attempt to earn a reasonable rate of return.